Scope has downgraded DF Deutsche Forfait AG (cons., hereinafter “DFAG“) from BB+ to B-. The rating remains under review for further possible downgrade. This significant rating action is mainly based on DFAG’s blacklisting by the Office of Foreign Assets Control (hereinafter “OFAC”) and its impact on DFAG’s business activities. Another reason is the company’s negative business development in fiscal year 2013 with a consolidated loss after tax of around EUR 3.8 million.

On February 6th 2014, DFAG, its US subsidiary ”DF Deutsche Forfait Americas Inc.” and former Member of the Board Mr. Wippermann (resignation on February 27th 2014) have been added to the OFAC list for alleged having violated the trade sanctions against Iran. As a result, the company is no longer able to conduct any business activities with involvement of US companies, banks or US citizens. .Therefore, no US dollar (USD) transactions are any longer permitted. This has a material impact on the company, asmost of the company’s business activities are processed in USD – In FY 2013 about 65% of DFAG’s balance sheet receivables are denominated in USD.

The company is convinced that its former Iranian business activities did not violate any US sanctions against Iran, and is working intensively to disprove these allegations. However, the outcome of the proceedings is uncertain and a prediction when DFAG’s business activities will return to the level prior to its listing cannot be anticipated. A continued OFAC listing potentially threatens DFAG’s existence. According to Scope sees considerable reputational risk for the company, which could impact important business relationships in particular with institutional investors.

In addition, with resignation of DFAG’s founding member Mr. Wippermann, Scope expects a significant risk of loosing in-depth knowledge of the forfaiting market and material business contacts.

In fiscal year 2013 DFAG reported a consolidated loss after tax of around EUR 3.8 million. The loss results from provision for value-added tax repayments of EUR 2.2 million and the depreciation of receivables in the amount of EUR 1.6 million as result of being added to OFACs sanction list. DFAGs operating performance is below previous year figures (2012) and below former estimates of the company. In fiscal year 2013, total forfaiting volume declined by 22% to EUR 532 Mio. compared to fiscal year 2012. Main reasons for the decrease is a longer than expected processing time for contracts in the strategically important African market and the postponed set up of the trade finance funds managed by DFAGs subsidiary Deutsche Kapital Limited. By the year-end 2013, the trade finance funds saw no placement possibility for receivables, as expected.

Furthermore, Scope expects risks arising from DFAG’s geographical distribution of forfaiting volume. Apart from the business with Iran, which seems to be very uncertain, significant parts of DFAGs forfaiting volume are in direct or indirect area of influence of Russia. Given the tense political situation in those countries and possible implementation of international sanctions against Russia, Scope expects concentration risks in uncertain markets and hence material risks for DFAGs future business development.

Given DFAGs restricted operational capacity, the short and medium term impact of its OFAC listing, and the existential risk associated with, the rating remains under review for further possible downgrade.
 

Important information
Information pursuant to Regulation (EC) No 1060/2009 on credit rating agencies, as amended by Regulations (EU) No. 513/2011 and (EU) No. 462/2013

Responsibility
The party responsible for the dissemination of the financial analysis is Scope Ratings GmbH, Berlin, District Court for Berlin (Charlottenburg) HRB 145472, directors: Thomas Morgenstern, Florian Schoeller.
The rating has been prepared by Vessela Morgenstern (Executive Analyst).
Responsible for approval of the rating was Thomas Morgenstern (Managing Director).

Rating history
DF Deutsche Forfait AG – Germany: rated BB+ on 26.04.2013 and placed under review for downgrade on 14.02.2014

Information on interests and conflicts of interest
The rating was prepared independently by Scope Ratings but for a fee based on a mandate of the rated entity.

As at the time of the analysis, neither Scope Ratings GmbH nor companies affiliated with it hold any interests in the rated entity or in companies directly or indirectly affiliated to it. Likewise, neither the rated entity nor companies directly or indirectly affiliated with it hold any interests in Scope Ratings GmbH or any companies affiliated to it. Neither the rating agency, the rating analysts who participated in this rating, nor any other persons who participated in the provision of the rating and/or its approval hold, either directly or indirectly, any shares in the rated entity or in third parties affiliated to it. Notwithstanding this, it is permitted for the above-mentioned persons to hold interests through shares in diversified undertakings for collective investment, including managed funds such as pension funds or life insurance companies, pursuant to EU Rating Regulation (EC) No 1060/2009. Neither Scope Ratings nor companies affiliated with it are involved in the brokering or distribution of capital investment products. In principle, there is a possibility that family relationships may exist between the personnel of Scope Ratings and that of the rated entity. However, no persons for whom a conflict of interests could exist due to family relationships or other close relationships will participate in the preparation or approval of a rating.

Key sources of Information for the rating
Annual financial statements, annual reports/semi-annual reports of the rated entity/issuer, external market reports, data provided by the issuer or/and external data providers, website of the rated entity/issuer, research Scope Group.

Scope Ratings considers the quality of the available information on the evaluated company to be satisfactory. Scope ensured as far as possible that the sources are reliable before drawing upon them, but did not verify each item of information specified in the sources independently.

Examination of the rating by the rated entity prior to publication
The rated entities have been given the opportunity to examine the rating action prior to publication. Following that examination, the rating was not modified.

Methodology
The methodology applicable for this rating (Corporate Rating Methodology from Nov. 2013) is available on www.scoperatings.com. The historical default rates of Scope Ratings can be viewed on the central platform (CEREP) of the European Securities and Markets Authority (ESMA): http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. A comprehensive clarification of Scope’s default rating, definitions of rating notations and further information on the analysis components of a rating can be found in the documents on methodologies on the rating agency’s website.

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